Pep Boys 2010 Annual Report Download - page 130

Download and view the complete annual report

Please find page 130 of the 2010 Pep Boys annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 160

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160

THE PEP BOYS—MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended January 29, 2011, January 30, 2010 and January 31, 2009
NOTE 16—FAIR VALUE MEASUREMENTS
The Company’s fair value measurements consist of (a) non-financial assets and liabilities that are
recognized or disclosed at fair value in the Company’s financial statements on a recurring basis (at least
annually) and (b) all financial assets and liabilities.
Fair value is defined as the exit price, or the amount that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants as of the measurement
date. There is a hierarchy for inputs used in measuring fair value that maximizes the use of observable
inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be
used when available. Observable inputs are inputs market participants would use in valuing the asset or
liability developed based on market data obtained from sources independent of the Company.
Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market
participants would use in valuing the asset or liability developed based upon the best information
available in the circumstances. The hierarchy is broken down into three levels. Level 1 inputs are
quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs include
quoted prices for similar assets or liabilities in active markets. Level 3 inputs are unobservable inputs
for the asset or liability. Categorization within the valuation hierarchy is based upon the lowest level of
input that is significant to the fair value measurement.
Assets and Liabilities that are Measured at Fair Value on a Recurring Basis:
The Company’s long-term investments, interest rate swap agreements and contingent consideration
are measured at fair value on a recurring basis. The information in the following paragraphs and tables
primarily addresses matters relative to these assets and liabilities.
Cash equivalents:
Cash equivalents, other than credit card receivables, include highly liquid investments with an
original maturity of three months or less at acquisition. The Company carries these investments at fair
value. As a result, the Company has determined that its cash equivalents in their entirety are classified
as a Level 1 measure within the fair value hierarchy.
Collateral investments:
Collateral investments include monies on deposit that are restricted. The Company carries these
investments at fair value. As a result, the Company has determined that its collateral investments are
classified as a Level 1 measure within the fair value hierarchy.
Derivative liability:
The Company has one interest rate swap designated as a cash flow hedge on $145.0 million of the
Company’s Senior Secured Term Loan facility that expires in October 2013. The Company values this
swap using observable market data to discount projected cash flows and for credit risk adjustments.
The inputs used to value derivatives fall within Level 2 of the fair value hierarchy.
72